New exchange aims to cut CO2

A local commodities trader-turned-environmentalist will unveil plans Wednesday for a Chicago Climate Exchange--a trading mechanism through which big companies can buy and sell "greenhouse gas credits" to each other in an effort to prevent global warming.

Richard L. Sandor, widely recognized as the principal designer of treasury bond contracts at the Chicago Board of Trade, says he received commitments from 25 major companies, including Chicago-based Midwest Generation LLC and Detroit-based Ford Motor Co., to participate in a pilot carbon trading market.

Carbon dioxide, or CO2, is a gas frequently emitted during chemical processing and is believed to contribute to the depletion of the ozone layer, causing global warming. The Environmental Protection Agency does not regulate carbon dioxide emissions.

According to Mr. Sandor's plan, Chicago Climate Exchange members would be issued tradable emission allowances. The firms would then commit to a schedule for reducing their CO2 emissions, ideally 5% below current levels by 2005.

Companies that cannot comply with exchange's voluntary emission standards by 2005 can "buy" emission allowances from another member. For instance, if one manufacturer lowers its emissions by less than 5%, it can buy additional percentage points from a member company that has reduced its emissions by more than 5%. They also can buy emission "credits" by investing in renewable energy systems, such as wind or solar power, or by participating in projects that effectively remove CO2 from the air, such as forest expansion.

The 25 member companies will begin meeting this week to determine how to price emission allowances and to set other rules for the exchange.

A feasibility study for the Chicago Climate Exchange was funded by a $347,000 grant from the Chicago-based Joyce Foundation. The exchange pilot will begin in the Midwest--where 20% of greenhouse gas emissions are generated--and gradually expand to the rest of the country.

In a statement, Mr. Sandor, who is a visiting scholar at the Kellogg Graduate School of Management at Northwestern University and CEO of Environmental Financial Products, noted that "most of the actions needed to begin reducing the risk of climate change will have to be undertaken by the private sector, so a market developed by a private association" is an important part of the solution.